When mainland China imposed its security law on Hong Kong, coming after a year of political protests in the jurisdiction, many commentators assumed that Singapore would attract an influx of people and assets. The reality is more complex than that, however.

Asia’s twin financial centres - Singapore and Hong Kong - have long battled for dominance as the region’s pre-eminent destination for capital and services. Civil unrest may have eroded confidence in it but will Hong Kong’s loss automatically be Singapore's gain? 

“The answer is nuanced,” says a partner at a Hong Kong-based consultancy firm. Although from a Western perspective, the two are often considered interchangeable, expatriate life in both is in fact very different. Perhaps most prominently for those looking to cement their offshore tax status, Hong Kong is generous with allowing permanent residence status to anyone able to prove seven years of continuous residence. Singapore, on the other hand, is picky about offering permanent residence and a Singaporean passport is increasingly impossible for foreigners and requires two years’ mandatory army service for men of eligible age. 

“Put in your time in Hong Kong and you get residence for life,” says one banker who continues to live there with his family of four. He declined to be named. 

“Technology firms have good reason to believe they are better served out of Singapore,” he says, referring to the recent decision by Beijing to include Hong Kong’s internet within mainland China’s. Indeed, South Korean giant Naver confirmed in July it would expand its operations in Singapore to accommodate some of the services it used to provide out of Hong Kong, particularly around data. Facebook, Twitter and Google are similarly exploring other options to their Hong Kong base.

“But for financial services - from banks to fintech to wealth management operations - Singapore is not a one-stop solution,” the banker confirms. 

Equity capital markets in Hong Kong - both primary and secondary - have traditionally outstripped Singapore and continue to do so even in the current scenario. Companies raised $33.4 billion through initial public offerings and other equity sales in Hong Kong in the first six months of the year, according to Dealogic data, up by 70 per cent from the same period in 2019.

Not surprisingly then, the stock price of the Hong Kong exchange is up by 40 per cent this year and even after the introduction of the new security law, Hong Kong has wrestled the MSCI futures contract away from Singapore. With a market capitalisation of $56.9 billion, the exchange is by far the most vibrant in Asia. Indeed, Hong Kong could inadvertently benefit from the trade war between the US and China as Mainland firms increasingly turn away from New York listings and raise capital in Hong Kong instead. For the moment, equity traders as well as investment bankers who are planning to take companies public have no better playing field in the region. 

The last survey commissioned by the bank for International Settlements pegged Singapore as the third largest foreign-exchange centre globally and, with close to 8 per cent of all global currency trades, the largest in Asia. In an increasingly volatile world, forex trading will probably continue to rise and banks with large treasury functions and currency trading desks will no doubt have reason to double down on Singapore. However, currency markets lag equity markets in the pecking order of financial services and a mass exodus from Hong Kong to Singapore based on the strength of its currency or commodity markets is hard to imagine. 

The most prolific financial service in the region - private banking - has always been divided along geographical lines and clients and bankers across the North-South (Asia) divide rarely overlap. Bankers hunting opportunities in China will be hard-pressed to do so entirely from Singapore, even if the city is a popular offshore destination for target clients. “It just isn’t feasible to cover Greater China without a team in Hong Kong,” says the banker referred to above. “There is a reason why UBS has 10 teams dedicated to Hong Kong alone.” Clients aiming to diversify - not in itself a popular theme in Asia - are spoilt for choice and are likely to consider Dubai, Zurich or London as more insulated from politics in China than Singapore. 

In the past, Singapore has benefitted from Hong Kong’s prosperity and while it may have since decoupled to a degree, stability in Asia is in the interests of the region as a whole. 

“No one wants to see the situation in Hong Kong get any worse,” a Hong Kong-based consultant says, adding: “Certainly not Singapore which is geographically and culturally and economically tied to it.”